Analyst Conference Summary

Advanced Micro Devices, Inc.

conference date: July 15, 2010 @ 2:00 PM Pacific Time
for quarter ending: June 26, 2010 (2nd quarter)

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Forward-looking statements

Overview: Higher than expected revenues with lower-than-expected earnings show margins and GlobalFoundries are still problems for AMD.

Basic data (GAAP):

Revenue was $1.65 billion, up 5% sequentially from $1.57 billion and up 40% from $1.18 billion in the year-earlier quarter.

Net income was negative $43 million, down sequentially from $257 million but up from negative $330 million year-earlier.

EPS (earnings per share) were negative $0.06, down sequentially from $0.35 but up from negative $0.49 year-earlier.


"AMD expects revenue to be up seasonally for the third quarter of 2010." $630 million operating expenses, reflecting an increase in marketing.

Conference Highlights:

Non-GAAP net income was given as $83 million, for $0.11 EPS. Non-GAAP operating income was $138 million. Non-GAAP net income excludes the $120 million non-cash loss on AMD's investment in GlobalFoundries. EBITDA was $11 million.

Demand was strong for mobile. Customers launched a record number of new mobile and desktop platforms. Finally added Sony as a customer.

Gross margin was 45%, up 2% sequentially.

Cash balances were nearly flat at $1.90 billion. $200 million cash was used to repurchase $206 million in 2015 Convertible Senior Notes. Inventories ended at $581 million, up $4 million sequentially. $76 million free cash flow. Long term debt ended at $2.4 billion. Debt reduction will be a focus for the remainder of the year.

Increases in the computing solutions segment revenue (4% sequential, 31% y/y) were driven by notebook microprocessor and chipset sales. ASP were flat sequentially, up y/y. Customer adoption of Vision offerings has been strong.

The graphics segement had an 8% sequential revenue increase to $440 million, for 87% up y/y. GPU unit shipments set a record. ASPs decreased, generating an operating income of $33 million. There were some supply constraints on GPU shipments. Demand is expected to remain healthy in the second half of the year.

New Server processors were rolled out in the quarter. 6000 series ramped late in the quarter. These new products should show revenue strength in Q3. ASPs increased.

GAAP cost of sales was $915 million, leaving gross income of $738 million. R&D expense was $371 million, marketing general and administrative expense $229 million, amortization of acquired intangible assets was $17 million; restructuring charges were reversed for a $4 million gain. Leaving Operating Income of $125 million. Net interest & other expense was $53 million. Income tax benefit was $5 million. Loss on investments was $120 million.

Operating expenses came in higher that expected, partly due to accelerating R&D for Ontario.

Fusion Accelerated Processing Units (APUs) were demonstrated in the quarter. Ontario APU has a BobCat CPU core with a DX11 graphics unit. "It is a game changer that significantly expands our market." Plans to ship in Q4, with systems to customers in Q1 2011. Llano (higher end) production shipments will occur in first half of 2011.

Value of GlobalFoundries investment at the end of the quarter was listed as $148 million.


How do you perceive Q3 seasonal guidance? We like to see the midpont of 7.5% to 8%, with a box of 5% to 10% around it.

In Q2, for computing solutions margins were down sequentially because of a positive one time event in Q1. In graphics it was a supply constraint issue for the higher priced GPUs.

32 nm timeline? Ontario timeline was moved up dramatically, revenue in Q4. Yields are below plan for 32nm, so that delays Llano a couple of months.

Gross margins? We are pleased with improvements through better mix and more use of capacity. We hope to see better mix an utilization, but while second half demand is stronger, it is also more consumer oriented.

Percent of sales for GPU / CPU full platform? Good question, but it is hard to know, especially in channel sales. On OEM side we are seeing an increase in all AMD systems. The notebook attach rate has been increasing as well.

Fusion vs. Intel product? We have 3 Fusion designs planned, with 4 packages and a range of systems from low power notebooks to high power notebooks and desktops. Ontario is for netbook and small form factor. Llano is for mainstream desktop and notebook. We'll talk about power consumption of Ontario at launch, but it will open up a market segment for us. It will put higher end graphics where they were not available before. Ontario is on 40 nm bulk technology from TSMC.

Server demand? We still see robust demand. Out main need is to ramp our new platforms, but our position at servers is at an all time low.

Client PC demand? Enterprise PC demand is the smallest part of our market and a minimal focus.

Supply chain chatter vs. Intel & AMD optimism? We expect PC unit growth 16 to 20% y/y, which is bullish. Everyone is nervous about the debt crisis in Europe, a potential slowdown in China, so there is reluctance to build inventories. But end user demand seems strong.

Are you gaining share in notebooks and graphics? Yes.

Server share gain? We should gain share in back half of year. We were not happy with Q2 because our big OEMs did not get our products out until June.

R&D expense model? Assumption is second half is flat from Q2.

Ontario is for lower price points, form factors, and power consumption. We could target tablets, but it will mainly be for netbooks to low-end notebook. We think Ontario will compete very well against any Atom-based system.

32nm difficulties? TSMC is not at 32nm either. We are just behind what progress we had planned on the yield curve. GlobalFoundries is also expanding products for their new customers. We believe yields will improve and that GlobalFoundries has a good technology road map.

For Europe, inventories are being managed tightly. Because of weaker Euro, they are downgrading components to stay at price points.

For China, demand has held up so far. We are optimistic China will remain a growth engine for AMD.

On server side we were up on ASPs, down on units, slightly down on revenue. Clearly Intel did much better than us in servers in Q2. We had something under 10% market share. We hope to ramp because Magny Cours Opteron 6000 series offers advantages to users over competing products.

Chipset? Our chipset business is doing very well. We have close to 100% attach rates, and in the desktop segment we still have very good support from NVIDIA.

How long could higher marketing expense continue? Just Q3 & Q4.

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Copyright 2010 William P. Meyers